Reasons to Believe 'Sell in May' Might Turn to Buying

I mentioned yesterday that the two biggest problems facing the markets were poor earnings commentary, and the "Sell in May" philosophy, which has gathered a large following in the past several years.

Right on cue, ISI send a note to its clients this morning offering to take the other side of the trade. "More Arguments Against 'Sell in May' " is a lively treatise that makes the following points against selling now:

4) Japan is stirring: "Abenomics" — the name granted to the policies of newly-elected prime minister Shinzo Abe — will have a much bigger impact on Japan and the global economy that is generally believed.

The Case Shiller 20-city home price index, out this morning, was up 8.1 percent in January, the biggest monthly increase since the summer of 2006. S&P's David Blitzer specifically cited "broad based improvement in the U.S. economy" and purchases of homes by entrepreneurs and investors.

Abandoning "Sell in May" would certainly help the trend: this year's rally, which saw the S&P 500 goal most straight up from 1,426 to 1,563 on March 14 (up 9.6 percent!), is stalling out, despite the high level of bullishness.

The S&P 500 keeps knocking on the door of a new closing high, but we have gone nowhere for the past two weeks. We closed at 1,551 on March 8th; that is where we are now.

Europe has also stalled: the Athens Composite is at 3-month low, Spain at a one-month low. Italy, Portugal at three-week low. Japan remains just off a multi-year high. Emerging markets are weaker since the beginning of the year.

1) The Bank of Spain gave a downbeat forecast for the country today, predicting the economy would shrink 1.5 percent this year, after shrinking 1.4 percent in 2012. The economy is expected to grow in 2014. No better with employment:jobless rate of 27.1 percent, up from 26 percent in 2012.

And this morning I noted that April 4 would be the next big date for Europe, when policymakers will meet and will no doubt try to soothe nerves over Cyprus.